Just wanted to throw my two cents into this as well – I really need to get out more on Saturdays, don’t I!

My first comment – I would NEVER rely on Zillow, and having invested here in the U.S. professionally (as the head of a real estate firm) I see how it is many times very inaccurate. Basically the algorithm it uses to calculate value is somewhat flawed. What happens is, say we’re looking for 111 Main St, Miami, FL. If that property, as well as 10 properties nearby have been foreclosed on, with a mortgage outstanding of $500K, Zillow calculates that as 10 sales x 500K on these 10 properties.
They are then sold as foreclosures for 75K each, which then creates 10x sales at 75K each.

Zillow then takes the median (it’s a lot more complicated than that, but it gives you an idea….) and bases it’s value on that.

As many on here pointed out, you need to check the county website, maybe get a local appraiser, and speak to local agents. It takes a while and requires effort, but it’s absolutely worth it – you wouldn’t wak up to a black jack table if the odds were stacked against you (I know, they are, but you get my point…) and bet even $500, so why would you be willing to bet 20-30K on something without knowing the deal?

I do agree that sometimes, it’s “fair” to have to pay for a service from a professional company. We don’t charge any fees upfront and neither do U.S. realtors, but maybe Australians work differently. I would always make sure to check previous sale prices as well as the experience of the “expert” – spending one or two weeks in the U.S. doesn’t neccesarily make you an expert.

My last point – I see some people promoting places like Kansas City and St Louis, and then rack down on places like Detroit, Cleveland and places like that. In my experience, and we’ve bought in all of them, the type of property delivering you a 15-18% net yield, will be of similar quality. Section 8 most likely, not usually a great area, but providing you with income. If you are looking for capital appreciation, there are MANY better places, and I’m not saying Detroit et al is the solution to everyone’s problem, but what I want to say is the Section 8 program is the most generous up in MI, thereby giving the best yields.
It is true that people are leaving Detroit, but it is a VERY local market as many local experts will tell you. Go into one neighborhood and it might be empty, and then drive 0.5 miles and it’s fine, with renters and owner occupiers in every home.

Is anybody else other than us investing heavily in Indianapolis? It’s got a fair share of problems too but there is a lot of Federal funds coming in because of Superbowl 2012 and there is a large number of “white collar” jobs coming to the city. I’d compare it to Kansas City in many ways, and net yields, in what we hold, is around 14%, with lower insurances and taxes than in many areas.

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Kong,
That’s a valid question, and to an extent, you’re certainly right. A buy-to-let mortgage on a residential property will still always to a large extent be based on your personal credit, but a mortgage for a commercial property is, at least in theory, based more on the strength of the leases and the current tenant.
It is very important to consider this when looking at something – even if the cap rate looks really good, have a look at what kind of companies are in there. Are there a lot of mortgage brokers, insurance brokers, realtors etc, or do you have established tenants? What are the length and terms of the leases?

Buying thru an LLC generally makes sense in my opinion, more for tax reasons than for reasons related to liability.
I would say tha even though in theory it probably should be possible to finance 100%, you’re probably still better off the more money “down” you can bring, and also if you work with an established U.S. partner as they might be able to point you in the right direction.

One thing you might want to consider is purchasing a commercial building in need of some rehab, as you will get it for a much better price. Carry out the work, get a local broker to rent the units for you, and then use the improved property to pull out equity using a line of credit.
Does that make sense?

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Hi Treasure Hunter,
No problem – happy to share my experiences any time!
You are right in that it is shocking how some of these people “thank” you, for offering them an opportunity to own a home and giving them a mortgage. The issue is often that once they leave (and take with them whatever appliances they can) you usually have no clue where they’re going to, and your chances of getting hold of anything is very slim!
The cops are not usually the most interested in what has happened either – in the cities where you see a lot of these deals (Detroit, St Louis, Kansas City, Indianapolis, Cleveland….) the cops usually have other things to worry about!
The key is to get a large down payment – 15-20% if you can, and to record the land contract, which means you can legally enforce it in case of non payments, evictions etc.

I pretty much agree with what Steve is saying above – I am the President of a real estate firm too, so just like James, I have an ongoing interest in this question.
Many foreign investors (and some U.S. based too) really balk at the idea of paying HOA fees, although there are distinct advantages to doing so as well. Most of the times the HOA will look after all common areas as well as maintaining a certain level of security, something that can really help you save money in the long run, as well as some communities will also offer a tenancy sourcing service etc.
Off course, in some cases the HOA is way too high in relation to what is being offered, and in some cases the HOA is more or less bankrupt, in which case it won’t provide much assistance anyway.

Usually what happens in these cases with guaranteed financing is that the seller is able to purchase the property “all in” for 20K locally. He then sells it to an investor (usually foreign) so with the 50% down payment, he recovers his initial outlay (20K) and your monthly payments are his profits. I don’t mean to say that is always how it works, and it may still be cash flow positive for you (if he rolls the finance over 10 years) but I’d always make sure to research the price first – just my 2 cents.

Judih,
Thanks a lot for that – does this usually enable your foreign investors to open up bank accounts as well (using the LLC) in the United States?

In my opinion, the best cash flow and yields will be found at the lower end of the market – therefore, you need to look at places like detroit, Birmingham (AL), Indianapolis, Kansas City, St Louis etc….
From what I have invested in myself, there is very little difference between a 25K property in Michigan and a 25K property in Illinois, or Florida, or Ohio – you get my point. They need to be seen only as an “income product”, and not as much as an asset, as they are very hard to sell (never mind at a profit) if for whatever reason they are sitting empty.

Section 8 is not without problems, but to me, it is the best way to receive a reliable income at that end of the market.

You will most likely have a much better chance at seeing capital appreciation at the higher end of the scale, while your rent might hardly make you anything each month, and I believe (as a professional investor) that we might have at least a year, or even a few, before the markets appreciate.

Jay: Agree with you on the liability issue for LLC’s, I think for foreign investors a lot of the time it is just easier to have a US based company to be able to deal with utility companies, banks, and other issues that requires you to be “domestic”, but I am also surprised at how much some firms can charge to set these things up!

I agree with previous posters, financing is VERY difficult for non-residents who are looking for mortgages in the U.S. By far your best bet is trying to obtain financing in Australia, using property over there as collateral.
Florida is a good place to invest, although you need to be very cautious. There are also great cash flow deals, the best being in Michigan – I know some people on here are saying “Oh I’d never do Michigan, but will do Kansas City” – as an American and Investor (it’s what I do for a living) I can assure you that while on the surface they might look different, but when it comes down to it, a 20K home is a 20K home regardless if it is in Michigan, Kansas, Missouri or Florida I’m not defending Detroit, I’m just saying that at that end of the market, cash flow should really determine where to invest, as I think capital appreciation is unlikely in all of them, and Michigan has the most generous Section 8 list with the longest list of people waiting.